The Housing Bubble

It’s Friday desk clearing time for this blogger. “‘Home sellers throughout the Seattle region are experiencing a reality check and the days of multiple offers are days of the past,’ was how one director with Northwest Multiple Listing Service summarized the market. ‘People are taking notice of the evolving real estate landscape — even my mom tells me she’s noticing more for sale signs!’ remarked Robert Wasser, an officer of the Northwest MLS board of directors. George Moorhead, designated broker at Bentley Properties, is noticing an increase in the number of price reductions for actively listed homes as inventory increases, ‘even in the hotspots in Seattle and the Eastside.’”

“Moorhead detected new construction starts have ’slowed proportionately with sales,’ saying builders are now offering large incentives to attract buyers.”

“Higher interest rates play a role in determining how affordable homes are. Also, the increased borrowing costs has caused a decline in the home lending business. ‘All California is experiencing a slowdown,’ said Otto Kobler, branch manager in Santa Rosa of Summit Funding. The most dramatic impact of rising rates occurs in the lending business for those who want to refinance their homes. ‘It just vaporizes,’ Kobler said.”

“This summer, the housing market was expected to be extremely competitive, with lots of buyers vying for a limited number of homes. But it turns out, the housing market, including in our region, may finally be cooling down. Lawrence Yun, chief economist with the National Association of Realtors, says home prices have been rising too fast — much faster than people’s incomes. ‘Even in a strong local economy — in places like Denver, Salt Lake City or in Seattle — the home sales are coming down,’ he says.”

“Redfin CEO Glenn Kelman says the company lowered its Q3 forecast after ‘an unexpected drop in Redfin’s bookings growth in the past three weeks, slowing traffic growth in a weakening real-estate market.’ Kelman says the ’significant’ housing market slowdown could continue in the coming months. Kelman: ‘For the first time in years, we are getting reports from managers of some markets that home buyer demand is waning, especially in some of Redfin’s largest markets.’ He called out Seattle, Portland, and San Jose by name.”

“We are in the middle of a housing crisis in British Columbia. The intended goal of the speculation tax is to increase housing affordability by curbing foreign and domestic speculation and increasing the supply of housing throughout Metro Vancouver and in other designated regions. We are hearing from small- to medium-sized business owners across B.C. who are already feeling the ripple effect. Les Bellamy is the CEO of Bellamy Homes, a construction team of three and a support staff of three. Bellamy cites two project cancellations as a direct result of the speculation tax.”

“‘The first cancellation was from an Alberta family — it was a financial stretch for them to achieve their dream of retiring in Kelowna in the first place, but add in the speculation tax and they just couldn’t make it work,’ explained Bellamy. ‘The really unfortunate piece is that this family felt insulted and unwelcome in B.C. — these relationships are broken now.’”

“The woes of Foxtons and Countrywide could be symptomatic of a wider malaise in the property market undergoing structural change. The conclusion is drawn in an article in Investors Chronicle headlined ‘Estate agents exposed as the tide rolls out’. The article, by Mark Robinson says that its emergency cash call could horrify shareholders, given the hugely discounted shares placing. Robinson says that the problems besetting Foxtons and Countrywide could simply be the result of excessive leverage, constrained mortgage financing and a cyclical downturn in the London housing market.”

“Separately, bank Credit Suisse has cut its share target price for Countrywide to 17.2p – higher than the share finished yesterday – and said the group would take a £!4m hit when the fees ban comes in.”

“Based on data for the first half of 2018, the number of high-end real estate deals in Tel Aviv has sunk by as much as 80% in the past three years, according to Israeli real estate website Madlan. The slowdown in the high-end real estate segment is linked to the lower numbers of foreign investments reported in recent years. Between the years 2007 and 2016, real estate investors from France, the U.S., the U.K., and Russia made hundreds of real estate deals in Israel each year.”

“The impact of foreign investors on the local real estate market has gone down considerably, due to the appreciation of the Israeli shekel against the U.S. dollar, euro, and the British pound, and to tightening regulation on international money transfers.”

“Cheaper apartments could be on the way for Aucklanders as construction costs start to decline. According to the latest building consent figures from Statistics NZ, the average value of building consents issued for new Auckland apartments has been in an almost steady decline for the last 12 months.”

“In the second quarter of last year the average value of new building consents issued for new Auckland apartments was $451,050, and it then declined in three of the four following quarters. By the second quarter of this year, the average value per consent had dropped to $278,222, the lowest it has been since the third quarter of 2015. The decline in average value appears to have been driven by a fall in construction costs rather than a reduction in the average size of apartments being consented.”

“For the last two years, the average size of apartments consented in Auckland has been largely stable at around 100 square metres, and in the second quarter of this year it was 110 square metres. But over the last 12 months, the average value per square metre has declined form $5334 per square metre in the second quarter of last year to $2529 in the second quarter of this year, which was also the lowest it has been since the third quarter of 2015.”

“More than half of Millennial property investors are stressed by their finances and blame lousy advice for having to cut back spending, or work second jobs, to make ends meet, according to a national survey. They claim their savings and investments are being smashed by falling property prices and rising interest rates. It’s a generation of ‘rentvestors’ who rent the property they live in because of high property prices but buy investment properties in other areas they rent out. But many have bought in at the top of the market and are being hit by falling prices and rising costs.”

“Mandeep Sodhi, a former banker, said stressed Millennials are being forced to cut back on dining out, holidays and are working second jobs. ‘Most of these Millennials took out loans with the big four banks,” said Mr Sodhi about the survey. ‘They never bother looking around for property advice or shopped around for better rates with other lenders. They are paying a high price for their loyalty.’”

“Apartments have failed to realise the expected rise in values and their ‘cheap’ mortgage terms have expired and been replaced by more expensive principal and interest products. Lachlan MacPhee and Simon Gladysz, who live in the inner-Melbourne suburb of Richmond, are selling a one-bedroom off-the-plan investment apartment bought eight years ago that failed to increase in value. The couple found it easy to find a tenant but were paying higher interest rates after their interest-only term expired.”

“A huge increase in construction of inner-city apartments, falling prices, rising interest rates and growing investor nerves are making it more difficult to sell, analysts warn. Auzita Pourshash, a human resources consultant who rents in the north Sydney suburb of Neutral Bay, has recently bought a $500,000 investment property on the NSW Central Coast. Ms Pourshash made the investment because she wanted to own a property before her recent 30th birthday. ‘It is an investment property while I continue to live in Neutral Bay,’ she said.”